Competition and Welfare in Airport Slot Allocation

Airlines require landing and takeoff slots in order to serve congested airports. Currently, airlines are allocated slots for free and have to use them at least 80% of the time to keep them. A frequent proposal is to replace this system with auctions and eliminate the minimum usage requirement. To evaluate the welfare impact of the current system, I build and estimate a structural model of airline demand and route choice using EU data. My main counterfactual compares the status quo to an approximation of the outcome under an auction. I find that the minimum usage requirement leads airlines to increase the total number of flights they offer. This behavior exacerbates congestion, but it also increases competition and the number of available varieties to consumers, thereby increasing total welfare. The current system’s pro-competitive effect means that total welfare is actually lower under the auction approximation, although this result reverses if the social cost of carbon is high enough. My results highlight that reforms prioritizing allocative efficiency over the current mechanism’s pro-competitive properties risk substantial harm to consumers.